Improved 4QFY20 performance saw Takaful’s FY20 earnings exceeding our/market estimates. Positive vaccine rollout will see better sentiment in 2H 2021 which is also a historically strong period for Takaful. TP is revised to RM6.00 as we raised our FY21E earnings by 6% and coupled with an attractive dividend yield of ~5%, we reiterate our OUTPERFORM rating.

Above. FY20 PATAMI of RM364m accounts for 113%/108% of our/market estimates. The positive variance was attributed to strong performance in the 4Q partly due to lower claims incurred. DPS of 12.0 sen was declared - below expectations as payout was at 27% (vs. FY19 of 45%).

YoY, Activities were affected by the various lockdowns in place throughout CY2020. FY20 operating revenue contracted 5% with Gross Earned Premium (GEP) falling 8%, underpinned by weaker GEP from Family Takaful (-14%) vs. a healthier General Fund (+7%) due to lower sales from credit-related products and group medical products from the former as business activities were impacted by the COVID-19 pandemic. Better performance from General Fund was attributed to healthy business from the motor class segment. Net claims incurred fell 10% to RM889m with both Family and General Fund falling by 6% and 24%, respectively, due to lower claims from medical (Family) and motor (General). Income from other operations was soft (+6% vs. FY19 of +47%) dragged by weaker investment income (-21% to RM37m) and soft Fair Value gains of RM16m (-49%). Opex was well managed, contracting by 15% mitigating the impact of falling premiums as CNP for the period ended at RM364m (<-1%).

QoQ saw sequential improvement as CNP ended at +25% to RM104m due to lower claims incurred. GEP moderated at +4% to RM702m attributed to moderate sales from both Family Fund (+5%) and General Fund (+4%) on improved contribution from credit-related products (Family) and from fire and motor segments (General). The CMCO period saw lower claims with both Family and General Fund’s claims contracting at 60% and 12%, respectively. The strong CNP was also boosted by opex declining 18% sequentially to RM145m.

Positive developments ahead. Given that consumer sentiment will be boosted by the vaccine rollout, fiscal measures and prevailing low interest rates, we believe 2021 will see pent-up demand for Family Takaful Fund. We expect claims incurred ratio to rise progressively ahead as we expect less lockdowns vis-à-vis CY2020. Moving ahead, growth will be boosted by its online distribution and digital technologies supporting distribution channels. Given the lessons learnt from 2020, we expect the Group will continue with innovative strategies via the implementation of its digital strategy, online solutions and digital ecosystem to expand its distribution capabilities and brand awareness.

Post results, our FY21E earnings are tweaked by +6% (coming from a higher base) and we also introduce our FY22E earnings.

TP raised. We raised our TP to RM6.00 (from RM5.25) based on a 2.9x FY21E PBV (0.5SD below mean from -1SD). Vaccine rollout and various fiscal measures should see risks abating while activities are generally stronger in 2H of the financial year and will be underscored by full-swing vaccine rollout in 2H 2021. Furthermore, the counter offers an attractive dividend yield of ~5%. Reiterate OUTPERFORM.

Source: Kenanga Research - 24 Feb 2021